What is the importance of supplier negotiation?
Procurement, sourcing, and supply chains work closely with vendors and suppliers to create a resilient, healthy, and productive system. To ensure fair, effective, and sustainable contracts, companies must partake in supplier negotiation and determine the ideal terms for all parties involved. This process consists of agreeing on the right price, production time, delivery expectations, payment terms, and product quality. Negotiations must target mutually beneficial terms rather than simply focusing on the most inexpensive options. When a company expands, well-maintained strategic partnerships can propel its growth and success and help the business establish a strong foothold in other markets. The quality, speed, and cost of a supplier significantly impact any company’s baseline and must be seriously speculated when entering a contract. However, conducting supplier negotiations is a complex process, and companies often fail to account for major factors, such as building rapport, cost to supplier, and both parties’ missions and goals. Utilizing certain best practices can help companies prepare, discuss, and execute the ideal contract with new suppliers.
How to negotiate effectively with suppliers?
Build Credibility: When entering a business contract, both parties assess and evaluate their potential partners’ credibility, rapport with current and previous clients, and general authenticity. Experts advise maintaining honesty, authenticity, and clarity throughout the supplier negotiation process. This helps potential partners build trust and creates an environment that encourages authenticity. Posturing or lying in the negotiation process can cause severe backlash and lead to the loss of that and other associated deals, with no potential gain. Additionally, presenting the company’s values and policies is a sign of sincerity. It will demand the same level of respect, honesty, and adherence from a potential partner, building the foundation for a stronger and sustainable strategic relationship.
Understand Market Costs: When negotiating with suppliers or vendors, companies must conduct due diligence to understand their market, other suppliers, and the costs impacting businesses. It is imperative to understand the supplier’s costs, identify other potential suppliers’ prices, and analyze the best deal for them. In many cases, the cheapest option is not the best, and this practice can help assess the quality of the product being utilized, the treatment of employees, and the supplier’s values or goals. Evaluating the costs can also give companies insight into the honesty or lack thereof while partaking in supplier negotiations with a particular vendor. This step can help companies ensure they receive the best prices and terms and identify their business’s ideal partner.
Align Missions and Goals: Clarity regarding your company’s goals, missions, and targets can enable clarity, uniformity, and understanding in supplier negotiation. Similarly, awareness regarding a potential partner’s goals and missions can help companies identify whether their business targets, wants, and needs align and if it would be the best partnership. To maintain business congruency and understanding, contracts often work best if the companies have similar targets or follow a matching set of values. Making it significantly easier for employees, managers, and companies to work collaboratively and achieve the required goals for both parties. This practice can also help negotiators gain a more comprehensive understanding of their potential partners and develop a more beneficial and sustainable contract.
Mutually Beneficial Terms: Many companies make the common mistake and focusing contracts and terms towards their benefit. While it is imperative to gain substantial value from partnerships, it is equally essential to provide your partner value. During supplier negotiation, experts have advised noting and contributing to the potential vendor’s needs or goals. This helps increase compliance, improve supplier relationships, and ensure both parties continue to partake in this deal. Additionally, companies can achieve their targets with mutually beneficial terms while supporting their partner growth without disrupting operations. Growth for both partners is advantageous to the other and can help develop a strong, efficient, and valuable partnership.
Plan Evaluations and Reviews: When discussing contracts with potential suppliers and vendors, both parties must agree on regular evaluations, assessments, and reviews. This ensures compliance from both parties and creates room for modifications, improvements, or beneficial changes throughout the contract term. From the perspective of the company, regular evaluation helps differentiate compliant and valuable partners from others. On the supplier’s behalf, this practice can help identify problem areas, encourage improved involvement or changes from the company, and provide the environment required to rectify issues, improve processes, and gain significant value. Scheduling and planning the same gives both teams the time to prepare and exchange necessary information, creates a controlled environment to discuss challenges, and builds an improved workspace for the remainder of the contract.
Creating a successful negotiation strategy is essential for market leaders. Request a free proposal to implement negotiation levers to align your business goals with procurement objectives and ensure best delivery and value.
Success Story
Practicing smart, valuable, and accurate supplier negotiation was challenging and led to many failed partnerships, challenging contracts, and detrimental terms for a specialty chemicals manufacturer. These issues further led to supply chain complexities, delayed shipments, unsatisfied customers, and an overall decline in sales. To rectify this situation, the manufacturer chose to partner with SpendEdge and gain expert insights into conducting supplier negotiations. Our experts helped the client identify, evaluate, and concretize their business missions and goals; they also enabled a better understanding of the market and built a system to track changing costs and prices. Further, the company provided its professionals with crucial insights into proper supplier negotiations and gave them unparalleled advice regarding the value of relevant reviews and evaluations in supplier relationship management. With the guidance received from SpendEdge, the client significantly improved their supplier negotiations, developed strong strategic partnerships, mitigated supply chain complexities, and increased their sales significantly.
